Auditors raise red flags over growing losses at Ottawa’s Annidis

Ottawa’s Annidis Corp. said its first-quarter revenues jumped significantly while its auditors expressed concern about the firm’s ability to survive amid mounting debt.

Annidis (TSX-V: RHA) reported a 52 per cent jump in first-quarter revenues compared with a year earlier, thanks to a major contract with its Chinese distribution partner.

The firm said this week it booked revenues of $565,258 for the three-month period ending March 31, up from $372,382 in the first quarter of 2016. Its net loss dropped to $880,553 from about $1.2 million a year earlier.

However, the eye-care technology company’s growing deficit – which now stands at more than $40 million after Annidis posted a net loss of $4.3 million in 2016 – prompted its auditors to cast “significant doubt” on the firm’s ability to survive.

“The company believes that certain sales-related efforts and financing initiatives will provide sufficient cash flow for it to continue as a going concern in its present form,” Welch LLP said in a report filed with securities regulators late last month. “However, there can be no assurance that the company will achieve such results.”

Executive turnover

The latest results follow a year of shakeups at the top at Annidis.

In late February, the company announced that then-president and chief executive Cameron Bramwell had resigned “to pursue other opportunities.”

Mr. Bramwell, who had been on the job for less than a year after succeeding former CEO Michael Crowley in June 2016, was replaced on an interim basis by Gerald Slemko, who also assumed the role of executive chairman.

Jason Wright, who had been in charge of product engineering and development, was named general manager and took over responsibility for the day-to-day operations of the business.

Annidis, which makes an imaging platform that allows doctors to view the deepest areas of the eye, said this week it shipped 10 units to Mistarunited Technology Co., its Chinese partner and major shareholder. The company said the number of its diagnostic units installed in clinics grew from 111 in the first quarter of 2016 to 127 this year, adding it expects to ship “a significant number” of additional units throughout the year.

“Production activity has increased in order to meet this higher demand,” the firm said in a news release, adding it is concentrating its efforts on expanding its reach in the Chinese market.

Annidis trimmed operating expenses from slightly over $1 million in the three months of 2016 to about $850,000 this year. It attributed the decrease largely to a restructuring of its U.S. sales department in the second half of 2015 and the first half of 2016.

“The reduced sales and marketing costs reflect management’s decision to focus on the Chinese market and sell strategically into the North American market,” the company said.

The firm’s gross margin fell to 13 per cent of revenue, compared with 60 per cent a year earlier. Annidis said all its units so far this year have been sold at a lower distributor price, adding changes in the procurement process resulted in higher component costs. The company said it is “working on reducing the overall costs and expects unit costs to decline throughout the year.”